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Cap on dealer commissions unlikely to lead to change in premiums

General insurers, however, look to move towards risk-based pricing

Chirag Madia  |  Mumbai 

irdai, IRDAI
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With the and Regulatory Authority of India (Irdai) capping payments by companies to auto dealers, general insurers might move towards risk-based pricing, say industry players. But, premiums may not be impacted by much. 

Guidelines on motor service providers had brought auto dealers under their purview as motor service providers (MISP) and had capped distribution fees payable to them at 22.5 per cent for two-wheelers and 19.5 per cent for four-wheelers and sports utility vehicles (SUVs). Earlier, companies used to pay this distribution fees in the range of 25-30 per cent, across the segment. But, premiums are not to going to change despite the fall in distribution fees by companies, believes industry officials.

“If we talk in terms of premiums, it is likely that industry might move towards risk-based pricing. Until now, premiums were largely formula-based across the country, but now we might witness premiums going down in the region where loss ratio is less or customers who drive safely; while there might be some increase in places where loss ratios are higher,” said Sharad Mathur, head of sales and distribution at SBI General This commission structure is applicable only on premium charged towards “own damage”. Premiums of comprehensive motor policies has two components — third party and own damage. 

Now, with the change in the norms, MISPs offer a choice of different companies and inform policyholders of the premium rates of each insurer. MISPs can now tie up with any number of companies, which was not the case earlier.

“With MISP in force for almost a month now, it helped automobile dealers to become part of the regulatory framework and lots of transparency has come in the entire approach to distribute motor through this channel. companies as well will have a fair and transparent system and uniformity in the whole process,” Mathur said.

Also, these dealers can provide after-sales services such as modification, cancellation, renewal and claims servicing of motor policies for which they can charge a fee. So far, many automobile dealers have been selling motor policies either through third-party brokers or by floating an broking company. But now, MISPs can be appointed by the insurer or the intermediary to distribute and/or service motor policies of automotive vehicles sold through it, said. The industry also believes that, with the capping of distribution fees, costs of companies might come down, going forward. 

First Published: Wed, November 29 2017. 01:21 IST